Saturday, 23 June, 2018

Fed raises interest rates, with more hikes to come

Federal Reserve Chair Jerome Powell speaks during a news conference after the Federal Open Market Committee meeting Wednesday Federal Reserve expected to hike rates as Sterling slips
Priscilla Morrison | 14 June, 2018, 04:23

The US economy continues to strengthen, the Fed indicated, and it no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth.

The central bank raised the federal funds rate to a 1.75-2 percent target range, the second increase under Fed Chairman Jerome Powell.

The statement omitted previous language saying that the main rate would remain "for some time" below longer-run levels.

Most officials also expect the Fed will have to raise rates at least three times in 2019 and then at least once in 2020.

Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected.

In its updated forecasts, the Fed envisions stronger growth this year - 2.8 per cent, up from the 2.7 per cent it predicted in March.

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand. The dollar pared losses against a basket of currencies.

Federal Reserve Chair Jerome Powell arrives to a news conference after the Federal Open Market Committee meeting Wednesday

The announcement helped resolved a debate in financial markets over whether the Fed under Jerome Powell, who succeeded Janet Yellen as chairman in February, might see a need to signal a possible acceleration in rate hikes. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing global trade disputes could slow USA growth.

Mr Powell said concerns about trade are rising and the bank has received anecdotal reports that the uncertainties are leading companies to hold off on investment and hiring. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as a sturdy economy enters a 10th straight year of growth. It also forecast an even lower unemployment rate of 3.5% for 2019 and 2020.

The central bank's new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast.

The federal government drastically upgraded its forecasted 2018 economic outlook Wednesday, saying the U.S. economy was rising at a "solid" rate; an increase from its previous prediction of "moderate" growth. He'll likely address the decision to hike rates and the Fed's views on the overall economic outlook.

The Fed said its policy of further gradual rate increases will be "consistent with a sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective". "Higher rates and higher payments will squeeze the buying power of households without a compensating increase in wages".

Trump's imposition of tariffs on steel and aluminum imports has enraged USA allies.

More news: Red Cross launches Missing Types campaign

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